FINANCE
AUSTRALIA is HEADED FOR A RETIREMENT SAVINGS DISASTER
According to A CPB AUSTRALIA STUDY!
By Simon Guiliano, Senior Adviser, Segue Financial Services www.segue.com.au
No one wants to aim for less than a comfortable retirement yet recent Westpac Bank research indicates that at age 70, only 1 in 5 Australians will have any superannuation left. With a ‘big black hole’ looming for a large number of Australians in retirement where do you stand?
How do the commentators describe a “Comfortable Retirement”? Lifestyle needs are a personal thing; what’s comfortable for some may be inadequate or even affluent for others, depending on what they are used to and what their goals are. The Association of Superannuation Funds of Australia (ASFA) has attempted to define what income is required to live a comfortable retirement through its regularly revised ASFA Retirement Standard. (www.superannuation. asn.au/resources/retirement-standard) Based on the costs of a range of household essentials, as well as leisure activities, it has arrived at the following: Modest Lifestyle – Single $22,024 per year Modest Lifestyle – Couple $31,760 per year Comfortable Lifestyle – Single $40,391 per year Comfortable Lifestyle – Couple $55,213 per year
What is comfortable for you? Your answer will help define your plans for building your Retirement Nest Egg Whether you are happy with “comfortable” as defined by the ASFA Retirement Standard or whether comfortable for you is a multiple of ASFA’s Standard you need advice to find out where you stand right now and what action (if any) you need to take. Peace of mind comes from knowing what is needed and doing it. Half of 65 year olds alive at present will live to 100 due to bio-medical advances in the next 35 years according to the Actuaries Institute Chief Executive Melinda Howes. Will your money meet your lifestyle comfort level in retirement if you live to 100?
The following are just some things you should consider, no matter how old you are…
1. Seek Professional Advice
5. Consider Salary Sacrifice
This is the most important step. A qualified adviser will provide you with a clear, step by step plan to help you achieve your goals. Look for an adviser who prioritises strategy over products. The strategy includes how best to structure your assets, how to build them over time in the most tax effective manner, how to protect them in the event of injury or illness and how to ensure they pass onto your intended beneficiaries when you pass away.
If you are generating income that is surplus to your needs, a tax effective way of building your assets is to direct part of your pre-tax salary to superannuation via an arrangement with your employer. Salary sacrificed to superannuation is taxed at 15%, compared to at your marginal tax rate when paid to you. This is a very effective way of building your superannuation assets.
2. Plan Early The earlier you can start planning, the better your chances of meeting your retirement targets. Don’t fall into the trap of waiting until retirement is around the corner to prepare for it. Early planning helps position you to achieve maximum government benefits in retirement, as well as maximizing the value of your nest egg.
3. Set Realistic and Affordable Goals There is a trade-off between enjoying your money now versus having enough for later on. It is important to set realistic goals about what you want to do in the future and assess the affordability of these goals. Is short term gain worth potential long term pain?
6. Transition to Retirement You could elect to salary sacrifice a higher amount, and then replenish this by drawing a tax effective pension from your superannuation fund. Remember, super pensions are tax free after 60, so there can be significant tax savings which, in turn, boost your superannuation balance.
7. Delay Retirement and Plan for the Government Age Pension While it may not be ideal from a lifestyle perspective, delaying retirement in turn delays the need to draw on your own assets (while at the same time boosting them with the super guarantee for a few more years). This could add several years to their longevity. At least delaying retirement until you reach Age Pension age allows you to supplement your retirement income with the Age Pension, reducing the drawdown on your own assets.
4. Review your Superannuation Fund
8. Consider downsizing your home
You should review your superannuation fund and whether it continues to be right for you. For most, superannuation will provide the bulk of our retirement savings. It is important to remember that your superannuation is your money, and you need to take an active interest in how it is being managed.
If you find you don’t have enough at retirement, or run out of superannuation early, you can always consider downsizing your home to generate surplus capital which can be used to live on. Most will find that the family home becomes too big to manage at some stage, so a change can have both lifestyle and financial benefits.
By following the above tips, you can go a long way to ensuring you don’t become just another statistic, and can live the comfortable retirement you have dreamed of.